Operational and Supply Chain Strategies Will Change Drastically
How will production of alternative fuel vehicles (e.g. electric, natural gas, etc.) become a major focus for automotive companies and, if so, how will these alternatives affect their operational and supply chain strategies?
Student # 1: Benâs Post (Please respond )
The production of alternative fuel vehicles will significantly change automotive companies' operational and supply change strategies for several reasons. Whenever an innovation this significant happens in an industry, it creates entirely new processes, supply chain needs, industries, etc. "The future shift in the automotive value chain of e-cars will transform the nature and level of logistics coordination across dispersed plants" (Klug 2). Everything from the existing car's transmission to the air-conditioning units will have to be reconfigured to be compatible with batteries as opposed to combustion engines. The indirect impact of this innovation will also affect gas stations, third-party car repair shops, and accessories industries supply chains/industries as well.
Because of this innovation to the industry, existing powertrain supply chain suppliers are going to be hit significantly hard. "According to a market study, the manufacturing depth of vehicle manufacturers in the powertrain segment will decline from 51% to 32% for hybrid cars down to 0% for e-cars" (Klink et al., 2009). Because of this drastic decrease, powertrain segments of the supply chain will have to either rethink their entire business model or be forced to go out of business.
The change from combustion engines to battery-powered engines will alter the skillsets needed to be successful in the industry and therefore could change the car companies' supplier relationships. These skills by cell manufacturing companies are much more advanced in countries like China, Japan, and Korea (Wang and Kimble, 2011). Therefore, if American car companies want to have the best technology in their electric vehicles, they will have to obtain the batteries from Asian suppliers, significantly increasing logistics costs. Similarly, car companies employees will have to have more advanced skillsets to assemble the new e-cars, therefore increasing operational costs.
For the reasons listed above, the introduction and adoption of electric vehicles will drastically change the car industry, as well as all the interconnected supply chains that they depend on. The question is not "if" e-cars will take over, but rather "when". It is in the best interest of existing car companies to begin making transitions to the new industry, or else they will be left behind. I am curious to see how this innovation will change the landscape of the industries, and which operational and supply chain strategies come out on top.
Student # 2 Chadâs Post (Please respond)
The increase in production of alternative fuel, mostly electric, vehicles is starting to increase at a rapid rate. Â Tesla has been one of the leaders in this movement as they are strictly an electric vehicle company, but competition is heating up from both other electric vehicle companies and traditional automakers. Â As the focus on these electric vehicles grows the operations and supply chains of these legacy companies is going to change dramatically. There will be operational changes in the companies, like new factories and plants to produce what is needed for the electric vehicles, and there will also be changes to the supply chain, like an increase in usage of certain commodities like copper or rare earth metals. Finally, there is the question of charging stations.Â
One of the ways that these companies are going to have to adapt is they will need to either adapt their current factories or build new facilities that will be able to produce their new electric vehicles. Â Ford is a great example of this, they announced recently that they are going to spend billions of dollars to create infrastructure in the United States that will help them expand their electric vehicle line up (Boudette, 2021). Â This investment is going to include a plant that will be used to produce electric trucks and three battery factories (Boudette, 2021). Â It is the battery factories that is the real change from the historical norm for this innovation. Â While all vehicles have a battery, the batteries that power electric vehicles are significantly different and require a much higher investment from the company. Â This is why companies like Ford and GM are bringing the production of the batteries in house rather than outsourcing to a supplier.
Another change is going to be the increase in usage of certain commodities. Â Copper is the leading example here as it is one of the most widely used and has a large increase from traditional gas-powered vehicles to electric vehicles. The demand for copper for use in electric vehicle production is expected to increase from less than 500,000 tonnes in 2020 to more than 3.3 million tonnes by 2030, this would be a more than 6 times increase in just 10 years (Desai, 2020). While copper is already a component in traditional vehicles, and supply chains exist to get them to automakers, there is going to have to be changes in order to support an increase of that magnitude. Â If production of copper does not significantly increase to make up for the increase in demand automakers will need to make a more concerted effort to ensure they have enough to continue production. Â A great example of a recent supply chain issue in the auto space is semiconductors. Â Across the industry automakers have had to cut production and slash revenue and sales estimates over the past year due to a shortage of semiconductors, which are a key component to all vehicles today. As the prevalence of electric vehicles, and self-driving vehicles, has grown the need for additional semiconductors has as well. Â However, companies were not prepared for a shortage and did not make the investments needed to keep up with demand. The lack of sufficient investment, coupled with the COVID-19 pandemic, led to a global shortage of these semiconductors that could have potentially been avoided (Smith, 2021). If companies are going to reach the lofty goals that they have set for themselves in terms of electric vehicle production, they are going to have to foresee these potential supply chain issues and provide solutions to them before they can have a significant impact on production. The companies that are best able to predict shortages and prepare for them, either through investment in production like the semiconductors, or through production contracts with mines in terms of commodities like copper, will be the companies that are most successful in this transition to electric vehicles.
Finally, the question of charging stations. Â One of the reasons that new car buyers avoid fully electric vehicles is their driving range capability. Â Many electric cars can now drive up to around 300 miles on a single charge which is not bad when compared to traditional vehicles. Â The issue comes down to being able to find a charging station when you need one. Â There are currently thousands of charging stations around the country with roughly 110,000 chargers (Chokshi, 2021). Â This is a great start, but it is no where near the point where you can just pull off at the next exit and assume that one will be there. Â Prior to leaving for a road trip, you will have to carefully plan out where your stops will be in order to ensure a charging station is at the location you need. Â In addition, it is not as fast to charge a car as it is to fill one with gas. Companies will need to continue to improve their charging capability, maximum driving range, and buildout of charging stations in order for electric vehicles to truly compete with traditional vehicles on a large scale.
While the transition to electric vehicles is fully underway, there is still a significant amount of investment that will need to be made by these companies in terms of their operational and supply chain strategies in order to reach the goals that they have set for the next 10 to 15 years.
Student # 3 Ashelyâs post (Please respond)
The production of alternative fuel vehicles will force automotive companies to alter their business models. A Cambridge study shows that in 95% of the world, driving an electric car is better for the environment than driving a gasoline-powered car (Choudhury, 2021). Â This disruption causes risk for auto suppliers; exhaust systems, fuel systems, and transmissions face possible disruption as electric vehicles become more prevalent. Since more companies realize the impact of electric vehicles, more automakers have added electric vehicles to their fleet. Tesla delivered just under 500,000 vehicles, all fully electric, in 2020 (Staff, 2021). The high demand for electric vehicles caused BMW to alter its electric vehicle strategy by aiming to double sales of electric vehicles in 2021. Additionally, General Motors is fueling billions of dollars into an electric vehicle strategy.
The shift to alternative fuel vehicles is a result of global market demand. In 2019, IHS Market projected the US demand for EVâs, and hybrid cars would surpass 1.28 million by 2026 (Cuthrell, 2021). This projection comes from President Joe Bidenâs push for electric vehicles to make up half of all new auto sales by 2030. This change will push automotive companies to use profits from sales to expand rollouts of electric vehicles.
These alternatives significantly alter how automotive suppliers manufacture products. For example, since (Smith, 2021) late 2020, original equipment manufacturers (OEM) have faced severe shortages of semiconductors, which hinders the output for electric and traditional vehicles. With the increase in demand for EVs and supply chain shortages, manufacturers are expected to prioritize larger customers, such as business to business, over relatively small customers (business to consumer) to meet forecast demands.
Finally, the introduction of charging stations and energy credits post a question to suppliers. Researchers at the Southwest Research Institute (SwRI) have demonstrated security vulnerabilities in the most common electric vehicle (EV) charging equipment, proving it is possible for hackers to disrupt charging using low-cost hardware and software (Walton, 2020). Companies will have to increase their security to ensure that electric vehicles don't pose a high risk to hackers.Â